ex10-3.htm


    
      

    

    EXHIBIT
10.3

     

    
      NON-QUALIFIED
STOCK OPTION AWARD

      OF
HEALTH DISCOVERY CORPORATION

      


      THIS NON-QUALIFIED STOCK OPTION AWARD
(the “Award”) is made as of the Grant Date by HEALTH DISCOVERY CORPORATION, a
corporation organized under the laws of the State of Georgia (the “Company”)
to STEPHEN D. BARNHILL (the “Optionee”).

      


      Upon and
subject to the Terms and Conditions attached hereto and incorporated herein by
reference, the Company hereby awards as of the Grant Date to Optionee a
non-qualified stock option (the “Option”), as described below, to purchase the
Option Shares. Capitalized terms used but not defined herein have the meanings
ascribed to them in the Terms and Conditions.

      


      
        	 
      	
                A.

              	
                Grant
      Date:  August 15, 2008.

              
	 
      	 
      	 
      
	 
      	
                B.

              	
                Type
      of Option:  Non-Qualified Stock Option.

              
	 
      	 
      	 
      
	 
      	
                C.

              	
                Plan under which
      Option is granted:  This Award is not granted under or
      pursuant to any plan.

              
	 
      	 
      	 
      
	 
      	
                D.

              	
                Option
      Shares:  All or any part of 6,000,000 shares of the
      Company’s common stock (the “Common Stock”), subject to adjustment as
      provided in the attached Terms and Conditions.

              
	 
      	 
      	 
      
	 
      	
                E.

              	
                Exercise
      Price:  $0.08 per share, subject to adjustment as provided in
      the attached Terms and Conditions.  The Exercise Price is, in
      the judgment of the Board of Directors, not less than 100% of the Fair
      Market Value of a share of Common Stock on the Grant
  Date.

              
	 
      	 
      	 
      
	 
      	
                F.

              	
                Option
      Period: The Option may be exercised only during the Option Period which
      commences on the Grant Date and ends on the earliest of (a) the tenth
      (10th) anniversary of the Grant Date; (b) three (3) months following
      the date of the Optionee’s termination of employment with the Company and
      all Affiliates for any reason other than by the Company for Cause; or
      (c) the date of the Optionee’s termination of employment with the
      Company or an Affiliate for Cause; provided, however, that the Option may
      be exercised as to no more than the vested Option Shares determined
      pursuant to the Vesting Schedule.  Note that other restrictions
      to exercising the Option, as described in the attached Terms and
      Conditions, may apply.

              
	 
      	 
      	 
      
	 
      	
                G.

              	
                Vesting
      Schedule:  The Shares shall become vested in accordance
      with Schedule
  1.

              


      

      


      IN WITNESS WHEREOF, the parties have
executed and sealed this Award as of the Grant Date set forth
above.

      


      
        	 
      	
                OPTIONEE

              	 
      	
                HEALTH
      DISCOVERY CORPORATION

              	 
      
	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	/s/
      Stephen D. Barnhill  	 
      	
                By:

              	/s/
      Michael Hanbury  	 
      
	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	
                Title:

              	Director 
      	 
      


      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      TERMS
AND CONDITIONS TO THE

      NON-QUALIFIED
STOCK OPTION AWARD

      OF
HEALTH DISCOVERY CORPORATION

      


      1.      Exercise of
Option.  Subject to the provisions provided herein or in the
Award:

      


      (a)           The Option may be
exercised with respect to all or any portion of the vested Option Shares at any
time during the Option Period by the delivery to the Company, at its principal
place of business, of (i) a written notice of exercise in substantially the form
attached hereto as Exhibit
1, which
shall be actually delivered to the Company no earlier than thirty (30) days and
no later than ten (10) days prior to the date upon which Optionee desires to
exercise all or any portion of the Option; (ii) payment to the Company of the
Exercise Price multiplied
by the number
of shares being purchased (the “Purchase Price”) in the manner provided in
Subsection (b); and (iii) satisfaction of the withholding tax obligations
as provided in Section 2, if applicable; provided, however, that in the event
the Optionee is given notice of termination for Cause under any employment or
other agreement between the Optionee and the Company or any Affiliate or
otherwise, the Optionee’s ability to exercise the Option shall be suspended from
the giving of such notice until such time as the Optionee cures the
circumstance(s) constituting Cause, if expressly permitted by the applicable
employment or other agreement or otherwise, or, if there is no opportunity to
cure or no cure is timely effected, from and after the giving of such notice
through and including the effective date that the Optionee’s employment or other
service relationship is terminated for Cause.

      


      (b)    The Purchase
Price shall be paid in full upon the exercise of an Option and no Option Shares
shall be issued or delivered until full payment therefor has been made. Payment
of the Purchase Price for all Option Shares purchased pursuant to the exercise
of an Option shall be made:

      


      (i)           by
tendering cash or certified check in an amount equal to the Purchase
Price;

      


      (ii)          by
the delivery to the Company of a number of shares of Common Stock owned by the
Optionee prior to the date of the Option’s exercise, having a Fair Market Value
on the date of exercise either equal to the Purchase Price;

      


      (iii)         if
and when the Common Stock becomes traded by brokers, whether on a national
securities exchange or otherwise, by delivery of the Purchase Price in cash from
a broker, dealer or other “creditor” as defined by Regulation T issued by the
Board of Governors of the Federal Reserve System following delivery by the
Optionee to the Company of instructions in a form acceptable to the Company
regarding delivery to such broker, dealer or other creditor of that number of
Option Shares with respect to which the Option is exercised;

      


      (iv)         by
having the number of shares of Common Stock to be issued upon exercise of the
Option reduced by the number of whole shares of Common Stock having a Fair
Market Value equal to the Purchase Price; or

      


      (v)          in
any combination of the foregoing.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      Upon
acceptance of such notice and receipt of payment in full of the Purchase Price
and, if applicable, all required tax withholdings, the Company shall cause to be
issued a certificate representing the Option Shares purchased.

      


      2.             Withholding.  To
the extent necessary, the Optionee must satisfy his federal, state, and local,
if any, withholding taxes imposed by reason of the exercise of the Option either
by paying to the Company the full amount of the withholding obligation in cash;
by electing, irrevocably and in writing in substantially the form attached
hereto as Exhibit
2 (a “Withholding Election”), to have the actual number of shares of
Common Stock issuable upon exercise reduced by the smallest number of whole
shares of Common Stock which, when multiplied by the Fair Market Value of the
Common Stock as of the date the Option is exercised, is sufficient to satisfy
the amount of the withholding tax; or by any combination of the
above.  The Optionee may make a Withholding Election only if the
following conditions are met:

      


      (a)           the
Withholding Election is made on or prior to the date on which the amount of tax
required to be withheld is determined by executing and delivering to the Company
a properly completed Withholding Election; and

      


      (b)           any
Withholding Election made will be irrevocable; however, the Board of Directors
may, in its sole discretion, disapprove and give no effect to any Withholding
Election.

      


      3.            
Rights as
Shareholder.  Until the stock certificates reflecting the
Option Shares accruing to the Optionee upon exercise of the Option are issued to
the Optionee, the Optionee shall have no rights as a shareholder with respect to
such Option Shares.  The Company shall make no adjustment for any
dividends or distribu­tions or other rights on or with respect to Option
Shares for which the record date is prior to the issuance of that stock
certificate, except as this Award otherwise provides.

      


      4.            
Restriction on
Transfer of Option and Option Shares.

      


      (a)           The
Option evidenced hereby is nontransferable other than pursuant to Section 4(b)
below and by will or the laws of descent and distribution.  The Option
shall be exercisable during the lifetime of the Optionee or the Permitted
Transferee (as defined below in Section 4(b)), if applicable, only by the
Optionee or such Permitted Transferee, if applicable (or in the event of the his
Disability, if applicable, by his personal representative) and after his death,
only by his legatee or the executor of his estate.  In the event the
Permitted Transferee is an entity, the Option shall be exercisable during the
Option Period only by an authorized representative of the Permitted Transferee,
such as the grantor or trustee of a trust or the general partner of a family
partnership, as applicable.

      


      (b)           The
Optionee may transfer the Option to one or more members of his immediate family,
provided any such family member has attained age 21 on or before the intended
date of transfer, to a trust established solely for the benefit of the
Optionee’s immediate family, or to a partnership, provided the only partners in
the partnership on the intended date of transfer are members of the Optionee’s
immediate family (a “Permitted Transferee”).  Solely in accordance
with the following, for purposes of this Section 4(b), the term “immediate
family” means only individuals with one of the following relationships to the
Optionee: spouse, children, stepchildren, grandchildren, parents, stepparents,
grandparents, siblings, nieces, nephews and in-laws.

      


      (c)           In
the event the Option is transferred by the Optionee to a Permissible Transferee,
the Permissible Transferee shall be prohibited from making any subsequent
transfer other than, to the extent applicable, by will or the laws of descent
and distribution.

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

      (d)           Notwithstanding
the foregoing, the Company shall not be obligated to give effect to any transfer
of the Option to a Permitted Transferee unless the Optionee has provided the
Company with advance written notice of the transfer.

      


      5.            
Changes in
Capitalization.

      


      (a)           The
number of Option Shares and the Exercise Price shall be proportionately adjusted
for nonreciprocal transactions between the Company and the holders of capital
stock of the Company that cause the per share value of the shares of Common
Stock underlying the Option to change, such as a stock dividend, stock split,
spinoff, rights offering, or recapitalization through a large, nonrecurring cash
dividend (each, an “Equity Restructuring”).

      


      
        (b)    In the event
of a merger, consolidation, extraordinary dividend, sale of substantially all of
the Company’s assets or other material change in the capital structure of the
Company, or a tender offer for shares of Common Stock that in each case is not
an Equity Restructuring, the Board of Directors or its designee shall take such
action to make such adjustments in the Option or the terms of this Award as the
Board of Directors or its designee, in its sole discretion, determines in good
faith is necessary or appropriate, including, without limitation, adjusting the
number and class of securities subject to the Option, with a corresponding
adjustment in the Exercise Price, substituting a new option to replace the
Option, accelerating the termination of the Option Period or terminating the
Option in consideration of a cash payment to the Optionee in an amount equal to
the excess of the then Fair Market Value of the Option Shares over the aggregate
Exercise Price of the Option Shares. Any determination made by the Board of
Directors or its designee pursuant to this Section 5(b) will be final and
binding on the Optionee.  Any action taken by the Board of Directors
or its designee need not treat all optionees equally.

      

      


      (c)    The existence
of the Option granted pursuant to this Award shall not affect in any way the
right or power of the Company to make or authorize any adjustment,
reclassification, reorganization or other change in its capital or business
structure, any merger or consolidation of the Company, any issue of debt or
equity securities having preferences or priorities as to the Common Stock or the
rights thereof, the dissolution or liquidation of the Company, any sale or
transfer of all or any part of its business or assets, or any other corporate
act or proceeding. Any adjustment pursuant to this Section may provide, in
the Board of Directors’ discretion, for the elimination without payment therefor
of any fractional shares that might otherwise become subject to any
Option.

      


      6.            
Special
Limitation on Exercise.  No
purported exercise of the Option shall be effective without the approval of the
Board of Directors, which may be withheld to the extent that the exercise,
either individually or in the aggregate together with the exercise of other
previously exercised stock options and/or offers and sales pursuant to any prior
or contemplated offering of securities, would, in the sole and absolute judgment
of the Board of Directors, require the filing of a registration statement with
the United States Securities and Exchange Commission or with the securities
commission of any state.  If a registration statement is not in effect
under the Securities Act of 1933 or any applicable state securities law with
respect to shares of Common Stock purchasable or otherwise deliverable under the
Option, the Optionee (a) shall deliver to the Company, prior to the exercise of
the Option or as a condition to the delivery of Common Stock pursuant to the
exercise of an Option, such information, representations and warranties as the
Company may reasonably request in order for the Company to be able to satisfy
itself that the Option Shares are being acquired in accordance with the terms of
an applicable exemption from the securities registration requirements of
applicable federal and state securities laws and (b) shall agree that the shares
of Common Stock so acquired will not be disposed of except pursuant to an
effective registration statement, unless the Company shall have received an
opinion of counsel that such disposition is exempt from such requirement under
the Securities Act of 1933 and any applicable state securities law.

      


      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

         

      

      7.            
Legend on Stock
Certificates.  Certificates evidencing the Option Shares, to the
extent appropriate at the time, shall have noted conspicuously on the
certificates a legend intended to give all persons full notice of the existence
of the conditions, restrictions, rights and obligations set forth in this
Award.

      


      8.            
Governing
Laws.  This Award and the Terms and Conditions shall be construed,
administered and enforced according to the laws of the State of Georgia;
provided, however, the Option may not be exercised except, in the reasonable
judgment of the Board of Directors, in compliance with exemptions under
applicable state securities laws of the state in which the Optionee resides,
and/or any other applicable securities laws.

      


      9.            
Successors.  This
Award and the Terms and Conditions shall be binding upon and inure to the
benefit of the heirs, legal representatives, successors and permitted assigns of
the parties.

      


      10.           Notice.  Except
as otherwise specified herein, all notices and other communications under this
Award shall be in writing and shall be deemed to have been given if personally
delivered or if sent by registered or certified United States mail, return
receipt requested, postage prepaid, addressed to the proposed recipient at the
last known address of the recipient.  Any party may designate any
other address to which notices shall be sent by giving notice of the address to
the other parties in the same manner as provided herein.

      


      11.           Severability.  In
the event that any one or more of the provisions or portion thereof contained in
this Award shall for any reason be held to be invalid, illegal or unenforceable
in any respect, the same shall not invalidate or otherwise affect any other
provisions of this Award, and this Award shall be construed as if the invalid,
illegal or unenforceable provision or portion thereof had never been contained
herein.

      


      12.           Entire
Agreement.  This
Award and these Terms and Conditions express the entire understanding and
agreement of the parties with respect to the subject matter hereof and supersede
all proposals or understandings, other communications between the parties,
whether written or oral, relating to such subject matter.    If
there are any conflicts between the terms of this Award and these Terms and
Conditions, on the one hand, and the Employment Agreement with the Optionee
dated August 15, 2008, on the other hand, the terms of this Award and the Terms
and Conditions shall control.  The Optionee hereby agrees to accept as
binding, conclusive and final all decisions and interpretations of the Board of
Directors regarding any question relating to the terms of this
Award.  This Award may be executed in two or more counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same instrument.

      


      13.           Violation.  Except
as provided in Section 4, any transfer, pledge, sale, assignment, or
hypothecation of the Option or any portion thereof shall be a violation of the
terms of this Award and these Terms and Conditions and shall be void and without
effect.

      


      14.           Headings.  Section
headings used herein are for convenience of reference only and shall not be
considered in construing this Award or these Terms and Conditions.

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

       

      15.           Specific
Performance.  In the event of any actual or threatened default
in, or breach of, any of the terms, conditions and provisions of this Award and
these Terms and Conditions, the party or parties who are thereby aggrieved shall
have the right to specific performance and injunction in addition to any and all
other rights and remedies at law or in equity, and all such rights and remedies
shall be cumulative.

      


      16.           No Right to Continued
Retention.  The award of Option Shares hereunder shall not be
construed as giving the Optionee the right to continued employment by the
Company or any Affiliate or the continued use of the Optionee’s services by the
Company or any Affiliate.

      


      17.           Definitions.

      


      (a)           “Affiliate” means
(i) any subsidiary or parent of the Company; (ii) an entity that
directly or through one or more intermediaries controls, is controlled by, or is
under common control with the Company, as determined by the Company; or
(iii) any entity in which the Company has such a significant interest that
the Company determines it should be deemed an “Affiliate,” as determined in the
sole discretion of the Company.

      


      (b)           “Board of Directors”
means the board of directors of the Company.

      


      (c)           “Cause” means “Cause”
as defined in the employment or other services agreement between the Optionee
and the Company or an Affiliate that is in effect at the date that an action
constituting “Cause” occurs, or if no such definition or agreement exists,
“Cause” means (i) failure (other than such failure resulting from his
incapacity during physical or mental illness) by the Optionee to substantially
perform his duties with the Company or an Affiliate; (ii) conduct by the
Optionee that amounts to fraud, dishonesty, disloyalty or willful misconduct in
the performance of the Optionee’s duties and responsibilities; (iii) the
Optionee being arrested for, charged in relation to (by criminal information,
indictment or otherwise), or convicted of a crime involving breach of trust or
moral turpitude or any felony; (iv) conduct by the Optionee that amounts to
gross and willful insubordination or inattention to his duties and
responsibilities; or (v) a breach or violation of the terms of any
agreement to which Optionee and the Company or an Affiliate are
party.

       

      (d)    “Change in Control” means the
consummation of (i) a merger, consolidation, share exchange, combination,
reorganization, or like transaction involving the Company in which the
shareholders of the Company immediately prior to such transaction do not own at
least fifty percent (50%) of the value or voting power of the issued and
outstanding capital stock of the Company or its successor immediately after such
transaction, or (ii) the sale of transfer (other than as security for the
Company's obligations) of all or substanially all of the assets of the Company
in any transaction or a series of related transactions, in which the Company,
any corporation controlled by the Company, or the shareholders of the Company
immediately prior to the transaction do not own at least fifty percent (50%) of
the value or voting power of the issued and outstanding equity securities of the
acquirer immediately after the transaction.

      


      (e)           “Fair Market Value”
means the value of a share of Common Stock as of a date, determined as
follows:

      


      (i)           if
the shares of Common Stock are traded on any national securities exchange or
through any nationally recognized quotation or market system (including, without
limitation Nasdaq), Fair Market Value shall mean the closing price at which
Common Stock shall have been sold on the trading day immediately preceding such
date, as reported by any such exchange or system selected by the Board of
Directors on or through which the shares of Common Stock are then
traded;

      


      (ii)         
if the shares of Common Stock are not actively traded on any such exchange or
through any such system, Fair Market Value shall mean the closing price for the
Common Stock for the most recent trading day immediately preceding such date, as
reported by such exchange or system; or

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

       

      (iii)        
if the shares of Common Stock are not actively traded or reported on any
exchange or through any such system and have not experienced a recent trading
day, Fair Market Value shall mean the fair market value of a share of Common
Stock as determined by the Board of Directors taking into account such facts and
circumstances deemed to be material by the Board of Directors to the value of
the Common Stock in the hands of the Optionee.

      


      Notwithstanding the foregoing, for
purposes of Subsections (i), (ii), or (iii) above, the Board of Directors may
use the closing price as of the indicated date, the average price or value as of
the indicated date or for a period certain ending on the indicated date, the
price determined at the time the transaction is processed, the tender offer
price for shares of Common Stock, or any other method which the Board of
Directors determines is reasonably indicative of fair market value.

      


      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

       

      EXHIBIT
1

      


      NOTICE
OF EXERCISE OF

      STOCK
OPTION TO PURCHASE

      COMMON
STOCK OF

      HEALTH
DISCOVERY CORPORATION

      


      
        	 
      	
                Name:

              	 
      
	 
      	
                Address:

              	 
      
	 
      	 
      	 
      
	 
      	
                Date:

              	 
      


      

      


      Health
Discovery Corporation

      2 East
Bryan Street, Suite 601

      Savannah,
GA  31401

      Attn:  Secretary

      


      
        	
                Re:

              	
                Exercise
      of Non-Qualified Stock Option

              


      

      


      Dear Sir
or Madam:

      


      Subject to acceptance hereof in writing
by Health Discovery Corporation (the “Company”), pursuant to the provisions of
the terms and conditions of the Non-Qualified Stock Option Award (the “Award”),
I hereby give at least ten days but no more than thirty days prior notice of my
election to exercise options granted to me to purchase ______________ shares of
common stock of the Company (“Common Stock”) under the Award dated as of
____________.  The purchase shall take place as of ___________________
(the “Exercise Date”).

      


      On or before the Exercise Date, I will
pay the applicable purchase price as follows:

      


      
        	 
      	
                [  ]

              	
                by
      delivery of cash or a certified check for $___________ for the full
      purchase price payable to the order of Health Discovery
      Corporation;

              
	 
      	 
      	 
      
	 
      	
                [  ]

              	
                by
      having the number of shares of Common Stock to be issued upon exercise of
      the Option reduced by the number of whole shares of Common Stock having a
      Fair Market Value equal to the purchase price;

              
	 
      	 
      	 
      
	 
      	
                [  ]

              	
                by
      the delivery to the Company of a number of shares of Common Stock owned by
      the Optionee prior to the date of the Option’s exercise, having a Fair
      Market Value on the date of exercise either equal to the purchase
      price;

              
	 
      	 
      	 
      
	 
      	
                [  ]

              	
                by
      delivery of the purchase price by _________________________, a broker,
      dealer or other “creditor” as defined by Regulation T issued by the
      Board of Governors of the Federal Reserve System.  I hereby
      authorize the Company to issue a stock certificate for the number of
      shares indicated above in the name of said broker, dealer or other
      creditor or its nominee pursuant to instructions received by the Company
      and to deliver said stock certificate directly to that broker, dealer or
      other creditor (or to such other party specified in the instructions
      received by the Company from the broker, dealer or other creditor) upon
      receipt of the purchase price.  Note:  This
      choice is available only if and when the Common Stock becomes traded by
      brokers.

              


      

       

      
        
          
          

        

        
          Exhibit 1 - Page 1 of 3

          
            

          

        

        
          
          

        

      

       

      I
understand that I am not permitted to exercise the Option if I have been given
notice that my employment or service with the Company or an Affiliate will be
terminated for Cause.  I understand that if my ability to exercise is
suspended in the manner provided for in the foregoing sentence, that my ability
to exercise may only be reinstated in the event that I cure the circumstances
specified in such notice that was the basis for my termination for Cause and
only if such ability to cure is expressly provided for in the applicable
employment or other agreement or otherwise.

      


      The required federal, state and local
income tax withholding obligations, if any, on the exercise of the Award shall
also be paid on or before the Exercise Date in the manner provided in the
Withholding Election previously tendered or to be tendered to the Company no
later than the Exercise Date.

      


      As soon as the stock certificate is
registered in my name, please deliver it to me at the above
address.

      


      If the Common Stock being acquired is
not registered for issuance to and resale by the Optionee pursuant to an
effective registration statement on Form S-8 (or successor form) filed under the
Securities Act of 1933, as amended (the “1933 Act”), I hereby represent,
warrant, covenant, and agree with the Company as follows:

      


      The
shares of the Common Stock being acquired by me will be acquired for my own
account without the participation of any other person, with the intent of
holding the Common Stock for investment and without the intent of participating,
directly or indirectly, in a distribution of the Common Stock and not with a
view to, or for resale in connection with any distribution of the Common Stock,
nor am I aware of the existence of any distribution of the Common
Stock;

      


      I am not
acquiring the Common Stock based upon any representation, oral or written, by
any person with respect to the future value of, or income from, the Common Stock
but rather upon an independent examination and judgment as to the prospects of
the Company;

      


      The
Common Stock was not offered to me by means of any publicly disseminated
advertisements or sales literature, nor am I aware of any offers made to other
persons by such means;

      


      I am able
to bear the economic risks of the investment in the Common Stock, including the
risk of a complete loss of my investment therein;

      


      I
understand and agree that the Common Stock will be issued and sold to me without
registration under any state law relating to the registration of securities for
sale, and will be issued and sold in reliance on the exemptions from
registration under the 1933 Act, provided by Sections 3(b) and/or 4(2) thereof
and the rules and regulations promulgated thereunder;

      


      The
Common Stock cannot be offered for sale, sold or transferred by me other than
pursuant to: (A) an effective registration under the 1933 Act or in a
transaction otherwise in compliance with the 1933 Act; and (B) evidence
satisfactory to the Company of compliance with the applicable securities laws of
other jurisdictions.  The Company shall be entitled to rely upon an
opinion of counsel satisfactory to it with respect to compliance with the above
laws;

      


      The
Company will be under no obligation to register the Common Stock or to comply
with any exemption available for sale of the Common Stock without registration
or filing, and the information or conditions necessary to permit routine sales
of securities of the Company under Rule 144 under the 1933 Act may not now be
available and no assurance has been given that it or they will become
available.  The Company is under no obligation to act in any manner so
as to make Rule 144 available with respect to the Common Stock;

       

      
        
          
          

        

        
          Exhibit 1 - Page 2 of 3

          
            

          

        

        
          
          

        

      

       

      I have
and have had complete access to and the opportunity to review and make copies of
all material documents related to the business of the Company, including, but
not limited to, contracts, financial statements, tax returns, leases, deeds and
other books and records.  I have examined such of these documents as I
wished and am familiar with the business and affairs of the
Company.  I realize that the purchase of the Common Stock is a
speculative investment and that any possible profit therefrom is
uncertain;

      


      I have
had the opportunity to ask questions of and receive answers from the Company and
any person acting on its behalf and to obtain all material information
reasonably available with respect to the Company and its affairs.  I
have received all information and data with respect to the Company which I have
requested and which I have deemed relevant in connection with the evaluation of
the merits and risks of my investment in the Company;

      


      I have
such knowledge and experience in financial and business matters that I am
capable of evaluating the merits and risks of the purchase of the Common Stock
hereunder and I am able to bear the economic risk of such purchase;
and

      


      The
agreements, representations, warranties and covenants made by me herein extend
to and apply to all of the Common Stock of the Company issued to me pursuant to
this Award.  Acceptance by me of the certificate representing such
Common Stock shall constitute a confirmation by me that all such agreements,
representa­tions, warranties and covenants made herein shall be true and
correct at that time.

      


      I understand that the certificates
representing the shares being purchased by me in accordance with this notice
shall bear a legend referring to the foregoing covenants, representations and
warranties and restrictions on transfer, and I agree that a legend to that
effect may be placed on any certificate which may be issued to me as a
substitute for the certificates being acquired by me in accordance with this
notice.  I also understand that capitalized terms used, but not
defined herein, shall have the meaning ascribed to them in the
Award.

      


      
        	 
      	 	
                 

              	 	
                Very
      truly yours,

              	 
	 
      	 	 
      	 	 
      	 
      	 
	 
      	 	 
      	 	 
      	 
	 
      	 	 
      	 	 
      	 
      	 
	 
      	 	 	 	
                Name:

              	 
      	 
	 
      	 	 
      	 	 
      	 
      	 
	
                AGREED
      TO AND ACCEPTED

              	 	 
      	 
      	 
	
                HEALTH
      DISCOVERY CORPORATION

              	 	 
      	 
      	 
	 
      	 	 
      	 	 
      	 
      	 
	
                By:

              	 	 	 
      	 
      	 
	 
      	 	 
      	 	 
      	 
      	 
	 
      	
                Name:

              	 	 	 
      	 
      	 
	 
      	 	 
      	 	 
      	 
      	 
	 
      	
                Title:

              	 	 	 
      	 
      	 
	 
      	 	 
      	 	 
      	 
      	 
	
                Date:

              	 	 	 
      	 
      	 


      

      


      
        
          
          

        

        
          Exhibit 1 - Page 3 of 3

          
            

          

        

        
          
          

        

      

      


      EXHIBIT
2

      


      NOTICE
OF WITHHOLDING ELECTION

      FOR
EXERCISE OF STOCK OPTION

      TO
PURCHASE

      COMMON
STOCK OF

      HEALTH
DISCOVERY CORPORATION

      


      


      


      
        	 
      	
                Name:

              	 
      
	 
      	
                Address:

              	 
      
	 
      	 
      	 
      
	 
      	
                Date:

              	 
      


      

      


      Health
Discovery Corporation

      2 East
Bryan Street, Suite 601

      Savannah,
GA  31401

      Attn:  Secretary

      


      
        	
                Re:

              	
                Withholding
      Election

              


      

      


      Dear Sir
or Madam:

      


      This election relates to the Option
identified in Paragraph 3 below.  I hereby certify that:

      


      (1)    My correct name and
social security number and my current address are set forth at the end of this
document.

      


      (2)    I am (check one,
whichever is applicable).

      


      
        	 
      	 	
                [  ]

              	
                the
      original recipient of the Option.

              
	 
      	 	 
      	 
      
	 
      	 	
                [  ]

              	
                the
      legal representative of the estate of the original recipient of the
      Option.

              
	 
      	 	 
      	 
      
	 
      	 	
                [  ]

              	
                a
      legatee of the original recipient of the Option.

              
	 
      	 	 
      	 
      
	 
      	 	
                [  ]

              	
                the
      legal guardian of the original recipient of the
  Option.

              


      

      


      (3)    The Option pursuant to which this
election relates was issued under the Non-Qualified Stock Option
Award (the “Award”) dated as of ____________ in the name of _____________________
for the purchase of a total of __________ shares of Common
Stock.  This election relates to _____ ________ shares of Common Stock
issuable upon exercise of the Option (the “Stock”), provided that the numbers
set forth above shall be deemed changed as appropriate to reflect the applicable
provisions in the Award.

      


      (4)    In connection with
any exercise of the Option with respect to Stock, I hereby elect to have certain
shares issuable pursuant to the exercise withheld by the Company for the purpose
of having the value of the shares applied to pay federal, state and local, if
any, taxes arising from the exercise.

       

      
        
          
          

        

        
          Exhibit 2
- Page 1 of 2

          
            

          

        

        
          
          

        

      

       

      (5)    The shares to be
withheld shall have, as of the tax date applicable to the exercise, a fair
market value equal to the minimum statutory tax withholding requirement under
federal, state and local law in connection with the exercise.

      


      (6)    This Withholding
Election is made no later than the tax date and is otherwise timely made
pursuant to the Award.

      


      (7)    I understand that
this Withholding Election may not be revised, amended or revoked by
me.

      


      (8)    I further understand
that the Company shall withhold from the Common Stock a whole number of shares
of Stock having the value specified in Paragraph 4 above.

      


      (9)    I have read and
understand the provisions of the Award that relate to the making of a
Withholding Election and I have no reason to believe that any of the conditions
therein to the making of this Withholding Election have not been
met.  Capitalized terms used in this Notice of Withholding Election
shall have the meanings given to them in the Award.

       

       

      
        	
                Dated:

              	
                 

              	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	
                Signature

              	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	
                Name
      (printed)

              	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	
                Street
      Address

              	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	
                City,
      State, Zip Code

              	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	
                Social
      Security Number

              	 
      


      

      


      
        
          
          

        

        
          Exhibit 2
- Page 2 of 2

          
            

          

        

        
          
          

        

      

      


      SCHEDULE
1

      


      VESTING
SCHEDULE

      


      The
Option Shares shall vest in the following increments if both the service
condition, indicated by applicable Vesting Date, and the performance condition,
indicated by the applicable Minimum Share Price, are satisfied, as provided
below:

      


      
        	
                Vesting Date

              	
                Minimum Share Price

              	
                Number of Options

              
	
                August
      15, 2008

              	
                $0.10

              	
                1,000,000

              
	
                January
      1, 2009

              	
                $0.15

              	
                2,000,000

              
	
                January
      1, 2010

              	
                $0.20

              	
                2,000,000

              
	
                January
      1, 2010

              	
                $0.25

              	
                1,000,000

              


      

      


      Each
portion of the option identified under the “Number of Options” column above
shall vest only if and when (1) the Executive has been continuously employed by
the Company through the applicable Vesting Date, (2) the Company’s Common
Stock’s closing price for any 20 consecutive trading days is no less than the
Minimum Share Price stated for the specified Vesting Date at any point after the
Effective Date (as adjusted for changes in capitalization as provided in the
attached Terms and Conditions), and (3) with respect to the options that have a
Vesting Date of January 1, 2010, either the Company has (i) cash on hand in
excess of $800,000, or (ii) a positive, trailing 90-day EBITDA, or (iii) raised
an additional $1,000,000 in capital from new investments, excluding any proceeds
from the exercise of any warrants or options.

       

      Notwithstanding the foregoing, in the even a Change in Control
occurs while the Optionee is employed by the Company, the Optionee shall
immediately become fully vested in all of the Option Shares (as adjusted for
changes in capitalization as provided in the attached Terms and Conditions),
provided that the per share consideration received by shareholders of the
Company on account of the Change in Control is equal to or greater than $0.10
per share of Common Stock (as adjusted for changes in capitalization as provided
in the attached Terms and Conditions).

       

       

       

      Schedule 1 - Page 1 of 1